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2016 (7) TMI 1132 - AT - Income TaxDisallowance u/s 14A - Double deduction - Held that - As observed that the assessee company has made investments of ₹ 1.47 crores in shares yielding exempt income which is same as in the preceding year as no fresh investment has been made during the year, while net owned funds of the assessee company comprising share capital and reserves are to the tune of ₹ 1.86 crores as on 31-03-2009 and ₹ 1.91 crores as on 31-03-2008 which are far in excess of the investments made by the assessee company of ₹ 1.47 crores in shares yielding exempt income. The assessee company has stated that the borrowed funds are utilized for project and none of the borrowed funds were used for the purposes of making investments in shares yielding exempt income which is also not controverted by the Revenue. In any case since there are net owned funds which are far in excess of investment in shares as set out above, presumption will apply as per decisions of Hon ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT ) and in the case of HDFC Bank Ltd. v. DCIT (2014 (8) TMI 119 - BOMBAY HIGH COURT ) and decision of HDFC Bank Limited v. DCIT 2016 (3) TMI 755 - BOMBAY HIGH COURT and hence no disallowance is warranted for interest paid by the assessee company under Section 14A of the Act read with Rule 8D(2)(ii) of Income Tax Rules, 1962 . Also as the assessee company had made disallowance of ₹ 73,740/- voluntarily of its own under Section 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 and the learned CIT(A) confirmed the same amount in his appellate orders dated 27-08-2012 which has led to double disallowance of the same amount which is added twice to the income of the assessee company which is not permitted under the Act. Hence we order deletion of the additions made by the AO as sustained by learned CIT(A) u/s 14 A of the Act read with Rule 8D of Income Tax Rules, 1962. It is also not brought on record that the Revenue is in appeal against the appellate orders of the learned CIT(A) - Decided in favour of assessee
Issues Involved:
1. Disallowance of Expenses under Section 14A of the Income Tax Act. 2. Calculation of Finance Cost for Disallowance. 3. Correctness of the Average Total Assets Calculation. Issue-wise Detailed Analysis: 1. Disallowance of Expenses under Section 14A of the Income Tax Act: The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in confirming the disallowance of expenses amounting to ?7,45,425 made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, as against ?73,740 disallowed by the assessee in the return of income. The AO observed that the assessee had not attributed any expenditure for earning exempt income from investments and made a disallowance under Section 14A read with Rule 8D of the Income Tax Rules, 1962. The AO's calculation included interest expenditure and a percentage of the average value of investments. The CIT(A) partially upheld this disallowance but adjusted the interest component. 2. Calculation of Finance Cost for Disallowance: The AO included a finance cost of ?25,75,333 for the purpose of working out indirect expenses while computing disallowance under Section 14A. The assessee contended that the loans taken were used for business purposes and not for investment in shares. The CIT(A) accepted the assessee's argument to exclude certain business-related expenses (bank charges, loan processing charges, and inspection charges) from the total interest payment, reducing the finance cost to ?25,13,455. The Tribunal further observed that the assessee's net owned funds were sufficient to cover the investments, and thus, no disallowance for interest was warranted under Section 14A read with Rule 8D(2)(ii). 3. Correctness of the Average Total Assets Calculation: The assessee disputed the AO's calculation of the average total assets at ?5,65,45,990, arguing that the correct figure should be ?8,34,70,490. The CIT(A) agreed with the assessee's calculation and adjusted the disallowance accordingly. The Tribunal upheld this adjustment, noting that the average total assets calculation provided by the assessee was accurate and should be used for determining the disallowance under Section 14A. Conclusion: The Tribunal concluded that no disallowance was warranted for the interest paid by the assessee under Section 14A read with Rule 8D(2)(ii) as the assessee's net owned funds were sufficient to cover the investments. Additionally, the Tribunal noted that the assessee had already voluntarily disallowed ?73,740 under Section 14A read with Rule 8D(2)(iii), which was confirmed by the CIT(A), leading to double disallowance. The Tribunal ordered the deletion of the additions made by the AO and sustained by the CIT(A) under Section 14A read with Rule 8D. The appeal filed by the assessee was allowed. Order Pronounced: The appeal filed by the assessee for the assessment year 2009-10 was allowed, and the order was pronounced in the open court on 14th June 2016.
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